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Charities Automatic Exchange of Information Event
29 June 2016
The Churchill Room, 100 Parliament Street, London, SW1A 2BQ
Welcome & Introductions
Aidan Reilly
Deputy Director, International Relations, HM Revenue & Customs
Common Reporting Standard
Elly Crockford
Policy Adviser Exchange of InformationHM Revenue & Customs
Automatic Exchange of Information
Crown Dependencies
and Overseas
Territories (CDOT)
HMRC
FATCA
Directive on
Administrative
Cooperation
in Taxation
(DAC)
The Common
Reporting Standards
(CRS)
Charities and the CRS
• One global standard implemented in the same way in all jurisdictions
• Defines Financial Institution, Reportable Accounts and Reportable Persons
CRS
• Charities are excluded from FATCA
• This was possible in a bilateral agreement between the UK and US due to the low risk to the US
• Charities in jurisdictions with less regulation have been used for tax evasion purposes and to hide wealth
• Charities are included in the CRS to combat these uses
• And to protect the reputation of legitimate charities
Charities
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How CRS works
Review
To Identify
By Applying
And then
Reporting
Financial
Institutions
Financial
Accounts
Reportable
Accounts
Due
Diligence
Rules
Report
Relevant
Information
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Reporting Financial Institutions
Reporting Financial Institutions
• Depository Institutions
• Custodial Institutions
• Investment Entities
• Specified Insurance Companies
Charities may be investment entities
• Where more than 50% of their income is from investing in financial assets
• And their assets are managed by another financial institution
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Financial Accounts
Financial Accounts
Depository Account
Custodial Account
Cash Value Insurance Contract
Debt or equity
interest in Investment
Entity
Debt/Equity Interests
Trust, foundation or
similar arrangement
All beneficiaries,
whether discretionary or mandatory
Companies
Shareholders, interest in the
profits or assets, exercise
control over assets
Debt Interests
All loans excluding
trade creditors
Including informal
loans
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Reportable Accounts
• Held by one or more reportable person
• Tax resident in a reportable jurisdiction
Reportable Accounts
• Legislation requiring a financial institution to gather data on the tax residence of all customers
• Identification of those with reportable accounts
• Future proofing
• Data is held for 6 years
The Wider Approach
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Due Diligence
Individuals
• Self-certification that confirms where tax resident
• Name, address, Tax Identification Number, DoB
Entities
• Self-certification confirming tax residence and status
• Publicly available information
• Name, address, Tax Identification Number, entity status
Entity status
• Financial Institution
• Active Non-Financial Entity
• Passive Non-Financial Entity
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Due diligence for charities
Self-certification
Can be verbal
Positive affirmation of tax residence
Tick box form
If normally resident in the UK then no further questions
Reasonableness test
Fit into existing checks carried out for governance
I.e. – if making grants to UK benefits claimants then it is
reasonable to conclude receipt of benefits means UK resident
Compliance teams to engage with charities to consider
difficult cases
Publicly available information
Charities registers published by Charities Commission for
England and Wales
Charities Commission for Northern Ireland
COES| 01/06/2015 | 11
Further guidance
HMRC guidance manual
International Exchange of Information Manual - HMRC internal manual - GOV.UK
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Offshore Data Exchange Team (ODET)
Helen Baker – ODET Technical Lead
The AEOI Portal allows you to upload and submit XML files
This service requires registration for Automatic Exchange of Informationhttps://online.hmrc.gov.uk/registration/options?GAURI
You will find the appropriate section in the bottom right hand side of the page
It may take up to 24 hours to create a Government Gateway accounthttps://online.hmrc.gov.uk/registration/organisation/fatca
Completing your registration
To complete your registration you’ll need to provide the following details:
About you:• organisation name (if applicable)• first and last name (your name or the name of a contact person if you’re an organisation)• email address• contact address
Information about each reporting financial institution (FI) that you want to register:• organisation name (if applicable) or first name and last name (if an individual)• email address• telephone number• address of their principal place of business• Global Intermediary Identification Number (GIIN) if reporting under FATCA for the USA• Unique Taxpayer Reference (UTR), National Insurance number or indicate that the reporting FI has no UK tax identifier• a list of all jurisdictions for which this FI needs to undertake reporting
Once this has been completed you’ll be provided with the following:• AEOI ID (10 digit reference)• HMRC Registration Identification Number for each FI that you’ve registered
Change registration details
Please ensure you keep your details up to date
Select This: See This:
Select this: See This:
Manual Input
You may use the portal to add data and build your return online.
Manual Input
You may add up to 250 reporting financial institutions, in a single submission.
Complete This: See This:
Manual Input
You may add up to 250 account holders, in a single submission.
Select this: See This:
XML Upload
You must have already created and saved an Automatic Exchange of Information (AEOI) XML file.
• Registering and Reporting Guidance
https://www.gov.uk/government/publications/foreign-account-tax-compliance-act-registration-guidance-fatca
• Government Gateway
https://www.gov.uk/log-in-register-hmrc-online-services
• The HMRC AEOI Portal
https://online.hmrc.gov.uk/fatca/
• Offshore Data Exchange Team (ODET)
Email: [email protected] Telephone: 03000 576748
Offshore Evasion Strategy
Common Reporting Standard
April 2016
Question 1:
Why do we need to know where the money is going?
• As part of the reciprocal CRS agreement the UK report to other jurisdictions and receive information on those that are UK tax resident with financial interests overseas
• Allows the UK to check the tax position of those tax resident in the UK
• Protecting the UK economy and targeting compliance activity at the highest risks
Question 2:
What will we do with the information once we have it?
• Compliance for charities follows HMRC’s usual compliance approach
• All entities are treated consistently to ensure a level playing field
• We take a risk based approach, focusing attention on the areas with the greatest risk of non-compliance
• The approach takes into account the size and complexity of the entity and what it is reasonable to expect them to do to get things right
Question 3:
What do we want you to do?
• The CRS obligations add to what charities should already be doing to support the gift aid claims made, or reliefs claimed
• We expect charities to carry out due diligence checks where required
• Charities should look to include these into existing governance when making grants
Question 4:How are we going to help you?
• We understand that tax law and charity law are complex areas and many charities have little money to engage advisers to help
• We understand that errors are made, despite the best efforts of those who manage charities, especially where there are new requirements
• We will take a light touch approach to compliance in the first 2 years of CRS reporting
• We will support charities to get it right, rather than penalising them for errors
• We will ensure that charities have a point of contact for queries, either through a customer relationship manager or other contact point
Lunch Break
12:00 – 13:00
Lunch will be served in room 2/51.
CRS & Charitable Trusts
Emily Deane TEP
Common Reporting Standard (CRS)
The CRS, developed by the Organisation for Economic Cooperation and Development (OECD),
is a global reporting standard for the automatic exchange of information (AEOI).
The objective of the CRS is to allow tax authorities to obtain a clearer understanding of financial
assets held abroad by their residents, for tax purposes.
It is a new system for exchanging tax information which builds on the principles of US FATCA.
Your charity is obliged to collect information for the calendar year ending 31 December 2016 and
must report to HMRC by 31 May 2017.
34
Charitable Trusts ‘CTs’
CRS obligations for Charitable Trusts (CT’s) only
Is it an Entity? Yes it is a CT
Is the CT within a Participating Jurisdiction?
Yes if one of more trustees are resident there
101 countries are participating including ALL EU members
35
Financial Institutions
CRS has two main categories for CTs
1. Is it a Financial Institution ‘FI’?
The CT will be an FI if at least 50% of the CT’s gross income is
derived from investing, reinvesting or trading in financial assets
AND
If the CT is professionally managed where either one or more trustees
is an FI or if the trustees have appointed a discretionary fund manager
(ie. professionally managed)
NO De Minimis threshold unlike FATCA
36
Timeframe
AND
in the shorter period of:
The three year period ending on 31 December in the year preceding in which its status as an
investment entity is to be determined; or
The period in which it has been in existence
37
Non-Financial Entity
2. Non-Financial Entity ‘NFE’
The CT will be an NFE if it is not an FI because:
Its income comes primarily from gifts, donations, grants and legacies
OR
It has no discretionary fund manager or FI managing the CT (ie. NOT professionally managed)
The financial information will not need to be reported
38
Financial Accounts
If the CT is a Financial Institution
Does the CT have financial accounts? More than likely – YES
The CT will need to report on the financial accounts that are held by
Account Holders
An Account Holder is a person who has ‘equity or debt interest’ in the
trust eg. Settlors, Beneficiaries, Protectors, a person who has made a
loan to the trust is deemed to have a debt interest
39
Who are the account holders?
Account holders are defined as anyone with a debt or equity
interest in the CT ‘an Equity Interest is considered to be held by
a person treated as a settlor, or beneficiary of all or a portion of
the trust, or any other natural person exercising ultimate
effective control over the trust’.
Account holders are reportable when tax resident outside of the
UK and in a CRS country
40
Account Holders
What is reportable?
On an annual basis ending 31 December to HMRC
The CT must obtain self-certifications from the account holders (no prescribed form)
Name, tax residence, address and TIN (some countries do not issue TINs so nothing to report unless they
have an equivalent eg. Social security, NI, Resident registration number)
A reportable person resident in more than one country who has more than one TIN will need to report them
The UK TIN is the National Insurance number
The account balance & gross amount paid or credited to the a/c in the reporting period. The closure of any
accounts.
DISREGARD FATCA! CTs have no reporting requirements
41
Reporting Beneficiaries
Mandatory beneficiaries – report the whole value of the trust fund and any distributions
received within a year
Discretionary beneficiaries – only need to report if they have received a distribution within
the year
Contingent beneficiaries – meet the same requirements as discretionary beneficiaries
Sections 2.36 and 9.2 of the FATCA guidance provide more information on valuing trusts and
accounts
42
Unknown beneficiaries
When CTs donate to homeless/destitute beneficiaries in a CRS country it may be difficult for the
trustee to obtain a self-certification:
The beneficiary’s residence can be confirmed verbally
If you cannot confirm it verbally you can assume that the beneficiary lives in the country
where they received the gift
Subject to a common sense ‘reasonableness’ test
43
Further reporting
Protectors and settlors are deemed to be account holders regardless of how much effective
control they have over the CT.
If a person is a settlor AND a beneficiary then they must be reported
twice as two separate account holders.
If the trust is a ‘Trustee Documented Trust’ then the professional trustee company must report on
the trust and the trust itself does not need to report.
44
Active NFEs
If CTs are not FIs they are deemed to be Active NFEs
It is active by reason of income or assets. This requires less than 50% of its gross income to be passive income eg. Dividends, interest, rents and royalties
Examples
Non-profit NFEs are usually included within the definition of Active NFEs
It is a Government Entity, International Organisation, Central Bank
It is a holding company for NFEs that are members of a non-financial group
See HMRC’s guidance for more detailed criteria
45
Active NFEs
Does and Active NFE need to report?
As an Active NFE the CT does not need to register or report.
However, they will need to provide their financial account
provider with:
Tax residency
TIN
46
Passive NFEs
Any NFE that does not meet the Active NFE requirements will be a Passive NFE – not applicable to CTs
Passive NFE - an entity which meets the definition of an FI but is located in a non-participating
CRS country
Therefore, the FI must ‘look through’ the entity to identify the ‘Controlling Persons’ in relation to the trust
and report on them if they are resident in a CRS country.
“the settlor, the trustees, the protector (if any), the beneficiaries and any other natural persons
exercising ultimate effective control over the trust”
Reportable – Name, address & DOB of each CP and account value
47
CRS - non participating jurisdictions
48
55 countries committed to exchange of information in 2017. 46
countries committed to exchange in 2018
All jurisdictions required to legislate ‘to prevent any Financial
Institutions, persons or intermediaries from adopting practices
intended to circumvent the reporting and due diligence
procedures.’
e.g. Trustees could avoiding onerous reporting by opting to fund
domestic beneficiaries only
Re-Cap Questions
Financial Institutions
1. Is the CT tax resident in the UK?
2. Is the CT a Financial Institution?
3. Does the FI maintain financial accounts?
4. Who are the account holders?
5. What is reportable?
6. When is the deadline?
49
Re-Cap Questions
Active & Passive NFEs
Is the entity an Active or Passive NFE?
Active - inform your financial account provider about where you are tax
resident and provide your TIN.
Passive - identify the ‘Controlling Persons’ of the trust and report on
them if they are resident in a CRS country
- report the name, address & DOB of each CP in a CRS country
and account value
50
Tips on CRS Forms
51
Tips on completing CRS classification forms:
Make sure it is CRS and not FATCA
Use the explanatory notes for defined terms
Use HMRC’s guidance notes in conjunction
Check the deadlines and sanctions for failure to comply –
potential £300-£3000 fine for late or inaccurate reports
If necessary, consult a professional advisor
See STEP’s flowchart
52
Questions
Practical application of CRS to charities
Wednesday 29 June 2016
Patrick Wilson, Head of Operational Tax
Nicola Mardon, TEP, UK Trust & Estate Services
Practical application of CRS to charities
Document classification: Public54
Agenda
1 Account Holders
2 Identification of Beneficiaries
3 Reporting
You will have heard from HMRC and STEP the legislative requirements.
In the following, we want to talk about the practical application given you have been classified as an FI under
CRS.
Practical application of CRS to charities
Document classification: Public55
Account holders of an FI
Your obligation under CRS is to report to HMRC any Reportable Account held by Reportable Persons.
As a Trust which is an FI by virtue of being an Investment Entity your reportable accounts are all Equity and Debt Interest’ holders which
specifically includes:
– A settlor of the trust;
– A beneficiary that is entitled to a mandatory distribution (either directly or indirectly) from the trust;
– A beneficiary that receives a discretionary distribution (either directly or indirectly) from the trust in the calendar year; and
– Any person that exercises ultimate effective control over the trust.
We must identify all natural persons that exercise ultimate effective control, the OECD has confirmed this includes:
– Trustee - this would have been part of your normal AML process and as such reportable persons should be identified
However the identification of beneficiaries introduces new challenges!
Practical application of CRS to charities
Document classification: Public56
What do we need?
Self certification from beneficiary – whether individual or entity
Source: http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/BIAC-CRS-ENTITIES-Self-Cert-Form.pdf
http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/BIAC-CRS-INDIVIDUAL-Self-Cert-Form.pdf
Practical application of CRS to charities
Document classification: Public57
Who are the beneficiaries?
Source: https://www.gov.uk/hmrc-internal-manuals/international-exchange-of-information/ieim400790
[snip]
Charity as FI
Charity as NFE
Practical application of CRS to charities
Document classification: Public58
Who are the beneficiaries?
UK registered charity
Practical application of CRS to charities
Document classification: Public59
Issues
Managing expectations
• Timing
• Research
• Secrecy
Confusion
• Clarity
• Language
• How do we know if the beneficiary has
classified themselves correctly?
• Value reported is not necessarily a taxable
value
Practicalities
• Students
• Homeless
• Minors
• Internal policies
• Beneficiary has no wish to complete the self
certification form
Conflict Practicalities
Managing Expectations Confusion
Practical application of CRS to charities
Document classification: Public60
Participating Jurisdictions
On the Internet to aid classification and reporting HMRC have provided a list of participating countries:
https://www.gov.uk/hmrc-internal-manuals/international-exchange-of-information/ieim402340
Residence & Tax ID Number
Practical application of CRS to charities
Document classification: Public61
Residence definition and tax ID numbers
http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/
This explains tax residence for the given jurisdiction and the form of related tax ID numbers
Reporting
We are required to report information to identify the account holder and the financial details:
Account holder: Name, Address, Jurisdiction of Residence, Tax ID number, Date of Birth, Place of
Birth, Account number , Reporting FI number
Financial Information: The total gross amount paid or credited to the account including the aggregate of
any redemption payments made to the account holder during the calendar year
Practically:
1) Account Number - you will need to allocate a unique ID for each payment through which
you could locate the record again
2) Date of Birth - If the account is pre-existing ie you have already made a payment to the
beneficiary you can provide the D.O.B of the beneficiary rather than the TIN (if not available)
3) Financial Information
- Discretionary Beneficiary – the sum paid in the year should be reported both as
the Account Value and as the Proceeds
- Settlor / Trustee / Effective Control – The total net asset value of the trust needs to be reported
against the individual
Practical application of CRS to charities
Document classification: Public62
XML or Direct Entry
HMRC have provided a PORTAL for Automatic Exchange of Information submission, you will need to register on this PORTAL.
.
Practical application of CRS to charities
Document classification: Public63
Provision has been made for direct entry
and for file upload in a specified format –
XML submission
You will need dedicated software to
generate the XML, so you need to decide
if the volume of reportable accounts
warrants this investment.
Practical application of CRS to charities
Document classification: Public64
QUESTIONS?
Discussion Groups
1. How to include AEOI due diligence into existing operations.
2. Communications internally and externally.
Thank you!
If you have any further questions or queries, please send them to [email protected]